THE EFFECTIVENESS OF MICRO FINANCE IN NEPALESE ECONOMY

A CASE STUDY OF
NUBL, PROGRAM IN PRATAPUR VDC, NAWALPARASI

A Thesis
Submitted to the Central Department of Economics
Tribhuwan University, Kirtipur, Kathmandu, Nepal
In partial fulfillment of the Requirements for
The Degree of Master of Arts
In
Economics

Submitted by
Raj Kumar Neupane
Roll. No. 153/2065
Central Department of Economics
Tribhuwan University
Kirtipur, Kathmandu
January, 2014

1
 Date:

LETTER OF RECOMMENDATION

The dissertation entitled “THE EFFECTIVENESS OF MICRO FINANCE IN NEPALESE

ECONOMY: A CASE STUDY OF NUBL, PROGRAM IN PRATAPUR
V.D.C.,NAWALPARASI, NEPAL” has been prepared by Mr. Raj Kumar Neupane under my
supervision in the partial fulfillment of the requirements for the Degree of Master of Arts in
Economics.
I forward it with the recommendation for approval.

Dr. Ram Chandra Dhakal

Executive Director, CEDA
T.U. , Kirtipur, Kathmandu, Nepal
Date:

Date: 2070 / /

APPROVAL LETTER

2
We certify that this dissertation entitled “THE EFFECTIVENESS OF MICRO FINANCE IN
NEPALESE ECONOMY: A CASE STUDY OF NUBL, PROGRAM IN PRATAPUR V.D.C.,
NAWALPARASI, NEPAL” Submitted by Mr. Raj Kumar Neupane to the Central Department of
Economics, Faculty of Humanities and the Social Sciences, Tribhuvan University in partial
fulfillment of the requirements for the Degree of MASTER OF ARTS IN ECONOMICS has
been found satisfactory in scope and quality. Therefore, we accept this thesis as part of said
degree.

Thesis Committee:

Chairman
Dr. Ram Prasad Gyanwaly …………………
Head of Department
Central Department of Economics
T.U. , Kirtipur, Kathmandu, Nepal

External Examiner
Dr. Kusum Shakya ……………….
Associate Professor
Central Department of Economics
T.U., Kirtiur, Kathmandu, Nepal

Supervisor
Dr. Ram Chandra Dhakal …………………
Executive Director, CEDA
T.U., Kirtipur, Kathmandu, Nepal

Date:

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 ACKNOWLEDEGEMENTS

This study report entitled “THE EFFECTIVENESS OF MICRO FINANCE IN NEPALESE

ECONOMY: A CASE STUDY OF NUBL, PROGRAM IN PRATAPUR
V.D.C.,NAWALPARASI, NEPAL” is written and completed for the partial fulfillment of the
requirement for the Degree of Master of Arts in Economics. I am proud of getting the chance to
complete the report under the supervision of Dr. Ram Chandra Dhakal and I would like to
express my gratefulness to him for his generous encouragement and undertaking the supervision
of my entire research, instead of his time bound. This form of report is the result of his
continuous suggestions, information, directions, warm cooperation and constructive comments.
So, I am deeply indebted to his valuable guidance without which this study would not have taken
in its present shape.
I would like to express my gratitude to Dr. Ram Prasad Gawaley, Acting Head of Central
Department of Economics for his advice and help. I owe to all the women and small farmer
respondents of the groups under micro-finance program, of Pratapur V.D.C .Nawalparasi, who
not only contributed their valuable time but also created comfortable environment by their
friendly and helpful behavior during the interview by participating in the study. I would like to
thanks Mr. Surendra Mishra, Mr. Manoj Rana, and Mrs. Radha Poudel for their help to fill
questionnaire during field survey. Likewise I would like to thank to the staff of NUBL, Pratapur
Branch specially Branch Manager Mr. Uttam Mishra. In the same way credit goes to staff
members of NUBL, especially Mr. Bhim Poudel for the help and information provided during
the preparation of this thesis
Last but not least, I would like to express my deep gratefulness to my parents, my friends
Trilochan, Sanjita, Prabhu, Sujan , Sagar, Sameer for encouragement and moral support from
inception to completion of this research work. In spite of my utmost care and effort, I bear the
full responsibility of errors and discrepancies that might have been sneaked in the report.
Raj
Kumar Neupane
153-2065-066
Central Department of
Tribhuvan University
Date:
LIST OF CONTENTS

LETTER OF RECOMMENDATION I
APPROVAL LETTER II
ACKNOWLEDGEMENT III
TABLE OF CONTENTS IV-VI
LIST OF TABLES VII
LIST OF FIGURES VIII
ACRONYMS IX-X

Page No.
CHAPTER ONE: INTRODUCTION 1-9
1.1General Background 1
1.2 Statement of the problem 7

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1.3 Objective of the study 8
1.4 Significance of the study 8
1.5 Limitations of the study 9
1.6 Organization of the study 9
CHAPTER TWO: LITERATURE REVIEW 10-18
CHAPTER THREE: RESEARCH METHODOLOGY 19-20
3.1 Research Design 19
3.2 Nature of the Data 19
3.3 Population and Sampling 19
3.4 Sample Technique 19
3.5 Process of Data Collection 20
3.6 Data Processing and Data Analysis 20

CHAPTER FOUR: MICRO-FINANCE IN NEPAL 21-30

4.1 Microfinance Sector Development 21
4.2 Practices/Models of MF 22
4.2.1 Grameen Bank Methodology 23
4.2.2 Community Based Models 23
4.2.3Village Bank Mode 24
4.2.4 Other Group and Individual Lending Methodologies 24
4.3 Providers of MF 25
4.3.1 Formal Sector 25
4.3.2 Semi-Formal Sector 26
4.3.3 Informal Sector 27
4.4 Regulations in Microfinance 27
4.5 Funding and Supporting Organization 28
4.5.1 Funding Organization 28
4.5.2 Supporting Organization 29
CHAPTER: FIVE: DATA ANALYSIS OF RESPONDENTS
31-50
5.1 Cast, Age and Marital Status of Women and Small Farmer Members 31
5 .1.1 Cast Distribution of Respondents 31
5.1.2 Age Group of the Respondents 32
5.1.3 Marital Status of Respondents 33
5.2 Family Size, Family Head and Education Attainment of the Respondents 34
5.2.1 Family Size of the Respondents 34
5.2.2 Family Head of the Respondents 35
5.2.3 Education Attainment of the Respondents 36
5.3 Land Holding Sizes of the Respondents 36
5.4 Purpose of Join in Micro-finance Programs 37
5.5 Main Occupational Status of the Respondents 38
5.5.1 Main Occupation of the Respondents before this Program 38
5.5.2 Main Occupation of the Respondents after this Program 39
5.6 Loan Status of the Respondents 40
5.6.1Main Purpose of the Taking Loan 40
5.6.2 Status of Loan uses in Specific Objectives 41

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 5.6.3 Loan Amount and Frequency of Loan Taken 42
5.7 Earning Status of the Respondents 43
5.7.1 Monthly Earning before and After Joining the MFP 43
5.8 Socio-Economic Status of Respondents 44
5.8.1Socio-Economic Status before Joining NUBL by Farmer 44
5.8.2 Socio-Economic Status after Joining NUBL by Farmer 45
5.8.3 Educational Status before Joining NUBL by Women 46
5.8.4 Educational Status after Joining NUBL by Women 47
5.9 Effectiveness of Poverty Reduction 48
5.10 Regression Analysis 49
CHAPTER SIX: SUMMARY, CONCLUSION AND
RECOMMENDATIONS 53-58
6.1 Summary 53
6.2 Conclusion 55
6.3 Recommendations 57

ANNEX – I 59

REFERENCES 70

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 LIST OF TABLES

Table 5.1: Cast and Ethnicity of Respondents 31

Table 5.2: Age Group of the Respondents 32
Table 5.3: family Size of the Respondents 34
Table 5.4: Family Head of the Respondents 35 Table
5.5: Education Attainment of the Respondents 36
Table 5.6: Land Holding size of the Respondents 36
Table 5.7: Propose of joining in Micro Finance Programs 37
Table 5.8: Main occupation of Respondents after this Program 39
Table 5.9: Main propose of the Taking Loan 40
Table 5.10: Loan Amount and Frequency of Loan Taken 42
Table 5.11: Monthly Earning before and after joining the MFP 43

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 LIST OF FIGURES

Figure 5.1: Marital status of the Respondent 33

Figure 5.2: Main occupations of the Respondents before this program 38
Figure 5.3: Status of Loan uses in specific objective 41
Figure 5.4: Socio Economic status before joining NUBL by Farmer 44
Figure 5.5: Socio Economic status after joining NUBL by Farmer 45
Figure 5.6: Educational status before joining NUBL by Women 46
Figure 5.7: Educational status after joining NUBL by Women 47
Figure 5.8: Effectiveness on Poverty Reduction 48

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 ACRONYMS

ADB Asian Development Bank

ADBN Agriculture Development Bank, Nepal
ASA Association for Social Advancement
CBB Chhimek Bikas Bank
BS Bikram Sambat (Nepali Calender Year)
CBO Commuity Based Organization
CBs Commercial Banks
CBS Central Beaureau of Statistics
CEDAW Convention of Elimination of all types of Discrimination Against Women
CGAP Consultative Group to Assist the Poorest
CGAP Consultaitve Group to Assist the Poor
CMF Center for Micro-finance
CSD Center for Self-Development
CSICP Cottage and Small Industry Credit Program
DEPROSC Development Project Service Center
DSLP Deprived Sector Lending Program
EU European Union
FINCA Foundation for Internatonal Community Assistance
FINIDA Finish International Development Agency
GBS Grameen Banking System
GNP Gross National Product
GTZ German Technical Cooperation
HDI Human Development Index
HDR Human Development Report
IBM Intensive Banking Program
IFAD International Fund for Agriculture Development
IFPRI International Food Plicy Research Institutes
INGO International Non Governament Organization
MC Micro Credit
MCPW Micro Credit Program for Women
MDG Mellinieum Development Goal
MF Micro Finance
MFIs Micro Finance Institutions
MFP Micro Finance Program
NBL Nepal Bank Ltd.
NG Nepal Government
NGO Non Government Organization
NHDR National Human Development Report
NPRC Nepal Planning Commission Report
NUBL Nirdhan Utthan Bank limited
PCRW Production Credit for Rurlal Women
PSCP Priority Sector Credit Program
RBB Rastriya Barijya Bank
RMDC Rural Micro Finance Development Center

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RRDBs Regional Rural Development Banks
Rs Nepalese Rupees
RSRF Rural Self-Reliant Fund
RUPP Rural Urban Partnership Program
SACCOs Saving and Credit Cooperatives
SFCL Small Farmer Cooperativers Limited
SFDP Small Farmer Development Project
SSCP Small Sector Credit Program
UN United Nation
US United States
USAID United State Agency for International Development
VDC Village Development Community
WB World Bank
WCS Women Cooperatives Societies
WDD Women Development Division
WDP Women Development Program

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 CHAPTER ONE
INTRODUCTION

1.1 General Background

Micro-finance is relatively a new innovation in the age-old banking industry. Microfinance is an

effective tool for poverty reduction of rural areas in Nepal. Especially from 1990s, the
development of microfinance institutions (MFIS) has contributed to diminish the poverty of the
country comparatively than previous days, by providing microfinance to the poor people. But
still 25.4 percent of the total population is under poverty (Economic Survey 2010/11). To make
these microfinance institutions more accessible to the poor is a crucial agenda for the country.

Whereas there are a lot of savings and credit cooperatives (SACCOs) and small farmer
cooperatives ltd Microfinance institutions in Nepal are governed by Banks and DG89financial
institutions (BAFIA), those are handled by cooperative Act (1992). There is also Financial
Intermediary Act (1998) to control the activities of Financial Intermediary Nongovernmental
organizations (FINGEs). The procedures for getting services from the different modalities of
MFIs differ. So there is a need of one umbrella act to make microfinance simple, and easy to
understand and get the access with.

Micro-finance has received a global recognition today not only as a powerful instrument for
poverty reduction and empowerment of women, but also as a promising sector of financing for
the banks, financial organizations and NGOs. Countries with sound Micro-finance system have
succeeded in reducing poverty and improving socio-economic conditions of women
significantly. MDG calls for reducing world poverty in all its forms by the year 2015 with
significant improvement in education, gender equality, health care and overcoming hunger and
environmental degradation through microfinance intervention (NPC, 2003).

The microfinance sector in Nepal has expanded considerably in recent years. The earliest
initiatives for establishing microfinance services in Nepal can be dated back to the early 1960s

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when the first credit cooperatives were established and primarily intended to provide credit to the
agriculture sector.

So the cooperative movement becomes the first vehicle of microfinance in Nepal, as 13

cooperatives provided flood victims access to financial services adapted to their specific needs.
In parallel, rural finance institutions were established such as the Agriculture Development Bank
of Nepal (ADBN), which aimed at providing credit and marketing support agriculture.

In 1974, the two state-owned commercial banks, Nepal Bank ltd. and RastriyaBanijya bank were
directed by the central bank, Nepal Rastra Bank, to invest at least a portion (first 5 percent to
increase as high as 12 percent) of their deposit liabilities in ‘small sector’. This marked the
beginning of the directed credit system in Nepal. In 1976, the scope of the small sector was
broadened to include agriculture, cottage industry and services, and has since then been called
the ‘priority sector’. The credit didn’t reach the poor, as only influential and well-connected
people, with collateral, were able to access the program. This led to the development of targeted
initiatives, such as the Intensive Banking program (IBP) in 1981, initiated by the government and
the central bank, through partnership with commercial bank. Under this approach, group
guarantee for loan repayment were used instead of physical collateral.( Sinha, Sanjay 2001).

Starting in 1975, the small farmers Development program, implemented by the Agricultural
Development Bank of Nepal, mobilized farmers groups using a credit plus approach, and was the
first experience of group-based lending in Nepal Unfortunately, it failed due to political pressure
for a fast expansion, overemphasis on credit high delinquency levels and the overall not
satisfactory performance of the system.

In 1982, the cottage and small Industries project and the production credit for rural women all
provided new directions to priority sector lending, focusing on project viability rather than
collateral, and therefore provided a financing window to the poor through commercial bank
collaborating with local development organizations. The commercial banks perceived this
program as more of an obligation towards the central bank than a business interest.

In 1990, the government of Nepal established the rural self-Reliance Fund (RSRF), with the
objective of providing wholesale loans to NGOs, cooperatives and other financial intermediaries

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for on lending to the poor. The Microfinance Department of NRB acts as the secretariat of the
RSRF and management committee headed by the NRB (Sinha,Sanjay 2001).

In 1992, the government of Nepal, following a recommendation from the NRB, established
Regional Rural Development Bank (RRDB) in each of the five development regions of Nepal,
modeled on the Grameen Bank methodology. It is called GrameenBikashBank (GBB). The
majority of the ownership is in the hands of government, Nepal Rastra Bank (the central banks
and public commercial banks, while other private commercial banks have small equity stakes.
During the same period , private initiatives led by NGOs, such as Nirdhan and the central for self
help Development, also used the Grameen Bank methodology, resulting in a generally more
efficient and successful replication. In the 1990s, with technical assistance from GTZ, local
branches of ADBN under the small farmer Development program, stated to be reorganized in to
federations of small farmer groups, the ‘small farmer cooperating ltd(SFCL); each operating as
an autonomous cooperative.

With the promulgation of the Development Bank act in 1995, Nirdhan was the first NGO(1998)
to transfer its microfinance portfolio into an autonomous microfinance rural bank
(NirdhanUtthan Development Bank).since 2000; three other microfinance rural banks were
created through the same process first initiated by Nirdhan with DEPROSC Development Bank
in 2000,SwabalmbanBikas Bank in 2001. Acknowledging the poor performance of the GBBs,
under public ownership, the central bank started a restructuring program, which will lead
ultimately to the privatization of the five GBBs, (Kayastha, Ragab 2010).

With the view of providing a source of wholesale fund to regulated microfinance institutions
(MFIs) the rural microfinance Development central (RMDC) was established in 1998, and later
on opened it’s lending to other MFIs. In 2001, the small farmer Development (SFDC) was
established under the Development Bank Act to provide wholesale funds to small farmer
cooperatives ltd.(SFCLs), which were formed after the transformation of small farmers
Development project, promoted under the small farmers Development project, into cooperatives
that SFCLs majority ownership will grow over time. (Kayastha ,Ragab 2010).

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Generally, the microfinance institution in Nepal can be divided into two types (1) Community
Based MFIs such as SCCs and SFCLs, (2) commercial oriented MFIs such as MFDBs, GBBs,
FINGO, sect so there are several modalities of MFIs in Nepal.
Microfinance is an important and relevant financial service to poor. It also included other
measures to promote human development: education, health and other minimum infrastructures
required, enhance broad financial activities in rural area. Poor can improve socio-economic
condition. Microfinance not only the tools of poverty reduction but also increase the income
level and self-employment to poor through various types of income generating activities World
Bank designs microfinance as “The provision of financial services to low-income clients
including the self-employed, it includes both financial and social inter-mediation, it is not simply
banking but also is a development tools.” Microfinance can help to increases income build viable
business and reduce their vulnerability to external stocks. It can also be a powerful instrument for
self-employment by enabling the poor, especially women to become economic agent of change.
Now formal sector are also much more sensitive for providing microfinance services to the poor.
I/NGOs and governments lend different programs with different modalities which have
significant role on reducing poverty. There are various causes which make the poor to remain
outside from the financial sector services. Ordinary banks they consider poor people are not
credit worthy. The operation cost of on many small amounts of loan is high. Banks are centered
in large town. But poor centered in rural areas. Poor people have limited economic opportunities,
limited saving and the condition of the women is miserable. The poverty depth of women is
higher than men. Poor people have less control over economic decisions. The main causes of
poverty is being unemployed. Due to the lack of reliable employment survey and forecast in
Nepal, the estimation of actual status of employment has been complex.

The main objective of rural finance/microfinance is to increase access of rural people to financial
services to undertake income generating activities and improve their livelihoods and to improve
socio economic conditions of the poor and deprived women. With a view to facilitate this

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process, both government and non-government organisations have launched various
programmes. However, the micro finance has set the following objectives:

1. To promote the quality of life and their living standard.

2. To provide financial and non financial services based on need of operation.

3. To provide necessary institutional support to other institution having similar objectives.

4. To assess larger loans, based on repayment performance.

5. To create income and employment opportunity for the poor people by mobilization of saving.

6. To provide assistance to the poor and marginalized women of Nepal, regardless of where they
live in and who they are

7. To promote the locally available technology for the best use of the internal available
resources.

NIRDHAN UTTHAN BANK LTD PROGRAMS

NirdhanUtthan Bank Limited, "the bank for upliftment of the poor" is a microfinance bank
established in November 1998 under Company Act of Nepal 1997 (now Company Act 2006).
Nepal Rastra Bank, the central bank of Nepal granted a license in April 1999 to undertake
banking activities under the Development Bank Act 1996. It started its formal operation from
July 1999. Now, operated under Bank and Financial Institution Act 2006, Nirdhan Utthan Bank
Ltd (NUBL) provides microfinance services such as Loans, Deposits, Micro insurence and
Remittance services to poor families of Nepal. The lending methodologies are individual lending
based on Grameen Bank, Bangladesh model and group lending based on Self-help Group model
through few specified branch offices.

Though, legally established as a company in 1998, the operation of NUBL is a continuation of

microfinance services provided by an NGO called "NIRDHAN" which was providing
microfinance services since March 1993. The story behind the establishment of "NIRDHAN"
starts from 1986 when Hari har Dev Pant, the Chief Executive Officer of NUBL/Executive
Chairman of "NIRDHAN" (then senior officer with central bank of Nepal) visits Grameen Bank
in Bangladesh. The visit inspired him to launch microfinance program in Nepal resulting the

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birth of "NIRDHAN" or "people without money" in 1991. NIRDHAN began its microfinance
operation in March 1993.

NIRDHAN, as an NGO has a limited recourses and capacity to satisfy unmet demand of poor
people in different part of the country. This results the establishment of Nirdhan Utthan Bank
Limited, NIRDHAN being a lead promoter. In July 1999, NIRDHAN transferred all
microfinance operations to Nirdhan Utthan Bank. NIRDHAN created Nirdhan Utthan Bank
Limited for the following strategic reasons:

1. Development banks are supervised and regulated by the Central Bank, which will enforce
banking standards

2. A development bank can have access to different source of funding enabling it to satisfy
financial need of poor people

3. The bank can lend to a wider range of clients, including micro entrepreneurs graduated out of
the bank's regular clientele. Further, a bank can accept collateral for potentially large and diverse
loan products;

The central office of NUBL is located at siddharthanagar municipality in Bhairahawa, with 92

branch offices spread in different areas of the country. The research area of NUBL is at Pratapur
VDC. Pratapur VDC lies at western development region of Lumbini zone at Nawalparasi district.
This VDC is 15Kms south from east west Mahendra highway. UP and Bihar; the Indian states
are about 10Kms far away to this VDC. People with different religious and ethnic variation live
in this VDC. Due to the influence of Indian Territory most people here are madhesi and
chaudhary.

The social and economy condition of the people living here is not satisfactory, still people
depend on the subsistence agriculture to earn their livelihood. Due to the same reason their social
and economy status is not uplifted.

1.2 Statement of the problem

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In Nepal different types of programs have been launched such as priority sector credit program
(PSCP), small farmers Development programs (SFDP), Integrated Rural Development program
(IRDP), production credit for Rural women (PCRW), Participatory District Development
Program (PDDP) which in fact is intended to uplift the rural poor, especially women (Regmi
2000).

But there are various constraints of the micro finance program to achieve its objective and
development goals. Utilization of loan is not easy in the beginning period. The misutilization of
the loan results the poor as poorer both economically and morally. Nirdhan Utthan bank Ltd is
one of the major contributions in the sphere by bringing all the rural people in participation.
Women’s participation is also its much emphasized aspects to make women economically strong
by handling the rural level saving and other programs weekly meeting, loan proposal, repayment,
compulsory deposits etc. The research focuses on effectiveness of micro-finance program for
women to improve the status of them and poverty reduction in their families. The NIRDHAN
UTTHAN BANK LTD are also micro-finance institution focused on women and small farmers.
NUBL is one of the best micro-finance programs of Nepal. For last 13 years, NUBL is working
in PRATAPUR V.D.C, Nawalparasi. There are some problems. So this research paper deals with
the following research questions.

1. Is the program effective or not in the context of poverty reduction and improving the overall
status of women or small farmers?

2. What are the changes in economic status after intervention of micro finance program?

3. What are the changes in education condition and awareness raising of the rural people
especially women before and after participating in NUBL?

1.3 Objectives of the study

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Micro-finance is emerging concept of Nepal. The value of micro-finance in Nepal is increasing
day by day. The main objective of the study is to make inquiry in to NUBL program in Pratapur
V.D.C., Nawalparasi. The objectives of the study are as follows:

1. To examine the effectiveness of the NUBL program in the context of poverty reduction
and improving the living standard of small farmers.

2. To analyze the change in educational condition of the rural people especially women
before and after participating in NUBL in the study area.

1.4 Significance of the study

Micro-finance is coined as the financial service rendered to the deprived group of the people and
small entrepreneurs to help them in developing self-employment opportunities and various
income generation activities. Usually, micro-finance is a program that serves a large number of
clients with reference to women/deprived people and works at a grassroots level with financial
sustainability.

Nepal has three decades of experience in micro-finance. Although many programs have been
implemented for poverty alleviation in Nepal, only micro-finance programs are seen as pro-poor
and rural based.

The micro-finance revolution has changed attitudes towards the poor in many countries and in
some has provided substantial flows of credit, often to very low-income groups or household,
who would normally be excluded by conventional financial institution.

Micro finance empowers women by putting capital in their hands and allowing them to earn an
independent income and contribute financially to their households and communities. Micro
finance activities can give them a means to climb out of poverty. Thus it is hoped that the
research findings will provide a wider ground for further research in the field of women.

18
The study is carried the rural areas test of MFIs. This is beneficial to know the perception of
rural women and small farmers on MFIs activities. How rural peoples are participating on MFIs?
How they get services from there? And what types of activities are done through such services?
Are interpreted;

1.5 Limitations of the study

This study has following limitations.

1) This study basically concerns to particular micro finance only.
2) The conclusion of this study may be or may not be applicable to other areas due to
difference in socio-economic conditions.
1.6 Organization of the study
The Research paper is divided in to six chapters. Chapter one is introduction part, second is
Review of literature and chapter third is concerns with Research methodology. Chapter four
deals with micro finance in Nepal, Chapter five is the Profile of Study Area and data analysis of
Respondents. Chapter six is major findings, summary, conclusion and recommendation.

CHAPTER TWO

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 LITERATURE REVIEW

Review of literature is one of the most important parts of any thesis. Literature review includes
review of old theses, dissertations, newspapers, magazines and suggestions
of experts .This chapter concern on the past event that has be done in the research problem.
Literature review is an important topic of the research dissertation. It supported to the researcher
to define the problem and choose the appropriate methodology and also give the guide lines for
collecting information.
Micro-finance has been successfully used as developmental tool to reduce poverty in many
countries. At present, micro-finance is being increasingly used in the form of development
strategy for achieving the developmental goals. However, the strategy would prove successful
only if it is able to strike balance between development and finance. Clients of micro-finance
institutions are usually poor and low income people, often living and awful overcrowded setting
or living in remote areas with less access to basic amenities and education, water, electricity,
banking services, health services, market facilities, etc.
Micro-finance has evolved as an economic development approach intended to benefit low-
income women and small framers. The term refers to the provision of financial service to low-
income clients, including the self employment. Financial services generally includes saving and
credit, however, some micro-finance organizations also provide insurance and payment services.
Many MFIs provide social intermediation services such as group formation, development of self-
confidence and training in financial literacy management capabilities among members of a
group. Thus the definition of micro finance often includes both financial intermediation and
social intermediation. Micro finance is not banking, it is a development. A micro-finance activity
usually involves:
1. Small loans, typically for working capital
2. Informal appraisal of borrowers and investments
3. Collateral substitutes, such as group guarantees or compulsory saving
4. Access to repeat larger loans, based on repayment performance
5. Streamlined loan disbursement and monitoring
6. Secure saving products

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Some MFIs provide enterprise development services, such as skills training and marketing, and
social services, such as literacy training and health care; these are not generally included in the
definition of micro-finance. MFIs are non-government organizations (NGO), savings and loan
co-operatives, credit unions, government banks, development bank, commercial banks or non
banking financial institutions. Micro–finance clients are typically self-employed, low income
entrepreneurs in both urban and rural area clients are often traders. Street vendors, small farmers,
service provides and artisans and small producers.
Essentials of micro-finance is targeted to the poor, group approach, no tangible collateral,
doorstep service, small loan size, frequent repayment, sustainable interest rates, simple procedure
of operation, free choice of economic activities by clients, disciplined clients, effective pre-group
training .

Marr, Ana(2002), This paper has challenged the validity of two of the basic premises underlying
existing theoretical and empirical studies: that microfinance can be a successful market solution
to resolve credit market failures and that solidarity sentiment prevail among the members who
constitute microfinance groups. Given these premises, current studies argue that a set of
incentives can be devised, without resort to public welfare funds, to correct information
asymmetries between borrower sand lenders. Studies also argue that group members will
practice mutual support because they originate from poorer segments of society—demonstrating
a tendency in such studies to romanticize the nature of social relations in community-based
networks. Evidence from research undertaken in urban and rural communities of Peru, as
presented in this paper, shows that group-based microfinance schemes are often unable to
harness local information and hence resort to inflicting increasingly.

Hulme and Moore (2006), Microfinance involves the delivery of small loans and other financial
services which the poor can use to build up their assets, establish or further develop a business,
increase their wealth and protect against risks. Pioneered by Mohammad Yunus who founded the
Grameen Bank in Bangladesh during mid seventies, MFIs today are spread all over the world
and count over 100 million of the world’s poor as their clients. This segment of the population
has often not had access to traditional banks. Subsidized government lending schemes, which
have tried to reach the poorest have often proved inefficient to overcome the screening,

21
monitoring and enforcement problems that restrict the access of the poor to the formal financial
sector.

Ministry of Finance (2010/2011), The micro-finance program has provided substantial help and
facility to the ultra poor families. The micro-finance institutes (MFI) are providing door to door
micro credit services to those ultra poor families who have no collateral guarantees to produce,
and are not capable of fulfilling the banking requirements for credit eligibility. Such families are
able to create their own assets by paying their micro-credits in small installments out of their
earnings made by engaging themselves in small entrepreneurial activities. Micro-finance
institutes have been helping these ultra poor families to be self reliant through the process of
social mobilization. Even in the present conflict situation whereby the banks have closed or
merged their branches/sub-branches, these MFIs have been constantly delivering door to door
micro credit services to the ultra poor communities. Credit recovery rate of these MFIs is above
98 percent.

The study by Rooij and Puri (1999) for International Labour Organization (ILO) makes a
comparative assessment of the impact of micro-credit grants and loans in Nepal and Uganda. The
impact is examined in terms of output, asset accumulation, employment, income, enterprise
performance and socio-economic characteristics (e.g. impact of expenditure on education,
nutrition, and health care services). Baseline survey was conducted in 1996 followed by mid-
term survey in 1997 and final survey in early 1999.

Findings of the survey show an increase in recipients' income in both countries. In case of Nepal,
recipients' income increased by 58 percent in a little over two years compared to the control
group in the area, which witnessed an income growth of some 24 percent during the same period.
In Uganda also both the grant and credit recipients saw their income increase more than two fold
(227 percent and 233 percent respectively). In case of assets, borrowers in Nepal were able to
double (203 percent) their capital base in two years as compared to the baseline period and, as
for the control group the figure was 210 percent. In case of conditional grant the value of asset
increased by 159 percent and 154 percent for the control group. Findings were similar in case of
Uganda also. Both credit recipients' and grant recipients' asset increased by 194 percent and 169

22
percent respectively. In terms of the performance of income generating activities, after more than
2 years, 80 percent of the income generating activities in Nepal that started with grants continued
to exist while 95 percent of the businesses financed by loans continued to do so. The socio-
economic impact on the households was less visible due to the limited time-period of the study.
In both countries, the transaction costs of administering the grants and the loans were in the
range of 10-20 percent of the value of the capital provided.

SFPS and RD (2004),A very few researches have been undertaken in the past for measuring the
impact of microfinance in Nepal. In2004, National Planning Commission (NPC) had funded a
study to assess the impact of micro-credit program n poverty reduction. The study was designed
to assess the access of the poor to the institutional credit, to examine the effectiveness of the
credit in helping to graduate the poor from absolute income poverty, to evaluate the social
indicators of benefits from the microfinance services, to assess effectiveness of the program in
gender development and empowerment, and to review the sustainability of MFIs in general. The
Centre for Policy Studies and Rural Development, Kathmandu conducted the study. The study
was based on both primary and secondary data, and focused on measuring impact on outreach of
microfinance programs and their coverage of the poor, social and economic changes noticed
among beneficiaries and sustainability of microfinance institutions. The study covered six
districts – three hills and three Terai, and covered both the private and the government supported
microfinance institutions. Altogether, 479 client samples were examined for collecting primary
data.

The study estimated the outreach of microfinance covering 35.25 percent of the poor. However,
the outreach was not confined to the poorest of the poor, as they constitute only 68.6 percent of
the total microfinance borrowers. It is interesting to note that 84.1 percent of the sample reported
that they could make profit from the first loan and receive profits at decreasing rates from the
succeeding loans. A small proportion of sampled households (24.4 percent) also felt
improvement in their social and economic conditions after their participation in the micro
finance programs.

23
A change in principal occupation among the sampled households was also noticed particularly
from agriculture to petty trading. Dependence on agriculture reduced from 56 percent to 48
percent, while dependence on petty trading increased from 11.1percent to 32.2 percent. The
respondents witnessed some positive changes in their possession of assets like better-roofed
houses, radio, television, bicycles, hand-pumps, etc. They also noticed improvement in their food
self-sufficiency status after enrolling in the microfinance programs. The frequency of
consumption of nutritious food items, such as fruits, eggs, meat and fish has also increased.

Due to the program efforts, the literacy rate among the members of microfinance programs has
risen from52 percent to 89.8 percent. The proportion of the respondents knowing about
HIV/AIDS and its transmission mode has also been found increased and many of them were
made aware by the microfinance programs about their health care facilities.

With the program, the gender division of works is also getting less value and the men also started
performing activities which were considered to be the responsibility of only women, such as
cooking, washing utensils, taking care of babies, etc. The percentage of women reporting the
increased control over income has also increased from 13.3 percent to 19.1 percent. However,
this study has indicated that microfinance programs have not been effective in contributing to the
reduction of poverty level as MFIs have not been able to extend their outreach to the ultra poor
and the poor in the hills

RMDC ( 2008),RMDC has also initiated an impact study of microfinance program on the socio-
economic dimensions of the clients of its partner organizations in order to see whether the
objective of improving socio-economic conditions of the ultimate clients has been attained or is
being attained. The study has focused on impacts of microfinance services on (i) loan
transactions from various sources, (ii) income-source-wise investment, income and savings, (iii)
living and non-living assets, (iv) food self-sufficiency and nutritious food consumption, (v)
clothing and housing type, (vi) health care measures and education of children, and
(vii)participation in social and political events, and empowerment of women. The study sample
included 192respondents of the 200 sample of ultimate beneficiaries from eight microfinance
institutions that include: Swabalamban Laghubitta Bikas Bank Ltd., NRDSC, Manushi, Nepal

24
MahilaUtthan Kendra, Jeevan Bikas Samaj, FORWARD, Mahila Sahayogi Sahakari, and Centre
for Self help Development.
It has revealed positive improvements in investment, income received, and savings made through
activities undertaken with the increased funding support in successive years. Assets, both living
and non-living, were found to have increased both in terms of quantity and value. Food self-
sufficiency situation did improve remarkably when compared to situation before participation in
the MF program. Number of daily food intake and frequency of nutritious food intake per month
were also found greatly impacted by the program. There is also remarkable improvement in
housing, health care, and education of children. Improvements were also observed in
participation in social and political events and found significant positive changes in the
empowerment of women members on the whole.
Lindgreen E.(2002), simply comments, "Micro-finance and women's empowerment in
Bangladesh, conforms that with growing interest in and support for micro enterprises programs
in developing countries, many of which have been directed towards poor women. Controversy
mounts over the effectiveness of MF efforts. Bangladesh largely through the effort of
Muhammad Youns has been a leader in the MF movement.”

Stock (1995), in his book explained that it is necessary to prove impact on the intended
beneficiaries. This is not easy an immediate question on what impact may be measured on
income, wealth, food security, child nutrition or gender relation argues that the tools of impact
assessment have so far neglected an assessment of effects which go beyond users or the
institutions which serve them to the nature and functioning of financial markets. This may be
because micro- credit programs are currently promoted as a strategy for both poverty alleviation
and women's empowerment.

Khandker (1998), in his article said that lack of saving and capital make it difficult for many
poor people to become self employed and to undertake productive-employment generating
activities. Providing credit seems to be a way to generate self-employment opportunities for the
poor. But because of lack of physical collateral, they have almost no access to institutional
credit. In formal lenders can be a source of credit, but poor households do not gain from
investing in productive income-increasing activities because of high interest rates. And these

25
sources are not reliable to poor and they can not save enough through such informal sector.
Micro-credit programs which are able to provide credit to the poor at affordable cost and can
help them become productive self-employed. Micro-credit program have thus emerged as an
antipoverty instrument in many low income countries. Microfinance target the poor especially
women, with financial services to help them become self employed in rural non-from activities
of their choice.
In his article entitled, Micro-finance for Achieving Millennium Development Goals in Nepal,
Dhakal (2004), highlights that financial services would assist to improve incomes and build
assets of poor populace. Dhakal stresses that the poor needs sound financial services and
specialized activity with a long term commitment Dhakal points out that direct link exists
between micro-finance and Millennium Development Goals (MDG). Hence, Dhakal mentions
that micro-finance instructions can fulfill the objectives of MDG. Further, Dhakal highlights that
strong management and efficient operations are required in micro-finance institutions to reach
the millions of people targeted financial services in Nepal. Finally, Dhakal conclude the article
by stating that micro-finance activity could not be considered as the substitution of investment in
education, health or infrastructure.

Ghimire has conducted the thesis entitled Impact of Microfinance, A Case Study of Microcredit
Program for Women in Nepal

The main objectives of this study were as follows:

1. To analyze the position of existing credit.

2. To measure the relationship between investment and income.

3. To assess the effect of training on standard of living of the people.

26
4. To measure the perception of users group towards the program.

5. To assess the financial sustainability of the program

The main conclusion of the study was:

The group activities, regular saving and investment, high rate of repayment and utilization of
loan have been satisfactory. This shows that financial sustainability and viability of the program
in Kahun VDC is guaranteed. The positive correlation between investment and changes in
income level of the participants show that the capability of the entrepreneurs for the repayment
of the loan in due time is good. Saving on the basis of the investment is found to be highly
effective aspect of the program upon which training and income generating activities is based.

Training and awareness program are the most crucial component of the program for making
skilled energetic entrepreneur to run their enterprises effectively and successfully. The program
has provided basic and awareness training, skilled and management training, agriculture training
etc to the participant women. It is found to be satisfactory to empower standard of living of the
people.

Poudyal, (2005) who conducted research for M.A. (Economics) on the topic "Micro-finance and
its impact on Economic Upliftment of Women" by taking main objectives as:

 To analyze the impact of micro finance on the economic upliftment of women.

 To suggest appropriate measures to improve micro-finance on the basis of economic

upliftment of women.

Her study gives following conclusions:

 Micro-finance program is the best way to uplift women economically as well as

socially.

 MFP is fruitful initiative as it reaches door to door of rural poor and promotes then to
save and do economic activities especially women.

27
  MFP should widen their area by appointing staff to hear. Understand their problem
and find out alternative as well as solution. So that they should not be victimized by
excess burden of debt.

It has qualitative study as well as quantitative for collecting the information: secondary and
primary both methods of data collection are under in practices as well as field survey rapport
building process had been commonly used for gathering the information. It has tried to make
research quantitative rather than qualitative

Poudyal has done a research in good manner that I agree with her. But she has used only
economic perspective. Economic upliftment is affected by other things like their social
awareness, and consumption pattern of food. But she neglects these aspects of women. She is
only limited on economic aspect (income, occupation, saving). So, my research will be another
piece to study on economic impact of micro-finance in Nepal.

CHAPTER THREE

RESEARCH METHODOLOGY
3.1 Research Design
This study is mainly focused on micro-finance program and case study of NUBL program in
Pratapur v.d.c. It is intended to find out economic impact and social benefit in specific area. A
descriptive research design is applied to analyze and interpret the quantitative and qualitative
data collected from the concerned field. Loan investment, repayment process and other
development process are related to micro-finance program. Primary and secondary data are used
for the study of rural poor women, small farmer and staffs of NUBL .

28
3.2 Nature of the Data
This study is based on the primary as well as secondary data. This study was mainly based on
primary data, which was collected from the field survey using structured questionnaire, focused
group discussion and the observation method. The related secondary data is obtained from
secondary sources e.g. books, pamphlets, articles, reports, web-sites, journals, annual reports,
economic survey and difference sources.

3.3 Population and Sampling

Nirdhan Utthan Bank Ltd. Pratapur, Nawalparasi branch is providing its services in eight V.D.C.
625 members are active in micro finance program . In Pratapur V.D.C. 180 members are active,
at present. Thus, the study only focuses on these active borrowers. The populations under this
study are 180 women and small farmer. 63 individuals were selected as the sample population
through the study. 35 percent out of 180 women and small farmer are taken as sample to obtain
accurate and real scenario and its effect on economic impact.

3.4 Sample Technique

The list of the rural poor women and small farmer was provided by NUBL Pratapur,
Nawalparasi. Random sampling method was used to fill up the questionnaires. From the list of
sample, 63 members were drawn by applying simple random sampling method to fulfill the
purpose of study.

3.5 Process of Data Collection

Members of women and farmer group leader, concerned line agency staffs were
interviewed separately. To collect necessary information the researcher had also discussed with
professionals and used observation method. Inter discussion quantitative as well as qualitative
method had also been implied to obtain desirable result.

3.6 Data Processing and Data Analysis

Data are managed and analyzed in proper table with formats, interpretations and explanation
made .Regression Analysis is use to analyze the collected data. Some diagrams like line graph,
pie chart , bar graph were used.

The applied formula to obtain significant result is:-

Regression
 Y = na = b X
 XY = a X = b X 2

Where a,b = Regression parameters

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 CHAPTER FOUR

MICROFINANCE IN NEPAL

4.1 Microfinance Sector Development

In the early 1960s, the cooperative movement became the first vehicle of microfinance in Nepal,
as 13 cooperatives provided flood victims access to financial services adapted to their specific
needs. In parallel, rural finance institutions were established such as the Agricultural
Development Bank of Nepal, which aimed at providing credit and marketing support to
agriculture.

In 1974, the two state-owned commercial banks, Nepal Bank Ltd. and Rastriya Banijya Bank
were directed by the central bank, Nepal Rastra Bank, to invest at least a portion (first 5 percent
to increase as high as 12 percent) of their deposit liabilities in the 'small sector'. This marked the
beginning of the directed credit system in Nepal. In 1976, the scope of the small sector was
broadened to include agriculture, cottage industry and services, and has since then been called
the 'priority sector'. The credit didn't reach the poor, as only influential and well-connected
people, with collateral, were able to access the program. This led to the development of targeted
initiatives, such as the Intensive Banking Program in 1981, initiated by the government and the
central bank, through partnerships with commercial banks. Under this approach, group guarantee
for loan repayment were used instead of physical collateral.

30
Starting in 1975, the Small Farmers Development Program, implemented by the Agricultural
Development Bank of Nepal, mobilised farmers groups using a credit plus approach, and was the
first experience of group-based lending in Nepal. Unfortunately, it failed due to political pressure
for a fast expansion, overemphasis on credit, high delinquency levels and the overall not
satisfactory performance of the system.
In 1982, the Cottage and Small Industries Project and the Production Credit for Rural Women all
provided new directions to priority sector lending, focusing on project viability rather than
collateral, and therefore provided a financing window to the poor through commercial banks
collaborating with local development organisations. The commercial banks perceived this
program as more of an obligation towards the central bank than a business interest.
In 1990, the government of Nepal established the Rural Self-Reliance Fund (RSRF), with the
objective of providing wholesale loans to NGOs, cooperatives and financial intermediaries for on
lending to the poor. The Microfinance Department of NRB acts as the secretariat of the RSRF
and management committee headed by the NRB deputy governor oversees the fund.
In 1992, the government of Nepal, following a recommendation from the NRB, established
Regional Rural Development Banks (RRDB) in each of the five development regions of Nepal,
modelled on the Grameen Bank methodology. The majority of the ownership is in the hands of
government, Nepal Rastra Bank (the central bank) and public commercial banks, while other
private commercial banks have small equity stakes. During the same period, private initiatives
led by NGOs, such as Nirdhan and the Center for Self-help Development, also used the Grameen
Bank methodology, resulting in a generally more efficient and successful replication.
In the 1990s, with technical assistance from GTZ, local branches of the ADB/N under the Small
Farmer Development Program, started to be reorganised into federations of small farmers
groups, the 'Small Farmer Cooperatives Ltd (SFCL); each operating as an autonomous
cooperative.
With the promulgation of the Development Bank Act in 1995, Nirdhan was the first NGO (1998)
to transfer its microfinance portfolio into an autonomous microfinance rural bank
(NirdhanUtthan Development Bank). Since 2000, three other microfinance rural banks were
created through the same process first initiated by Nirdhan, with DEPROSC Development Bank
in 2000, SwabalambanBikas Bank Ltd and ChhimekBikas Bank in 2001. Acknowledging the
poor performance of the RRDBs under public ownership, the central bank started a restructuring
program, which will lead ultimately to the privatization of the five RRDBs.
With a view to provide a source of wholesale fund to regulated microfinance institutions, the
Rural Microfinance Development Center (RMDC) was established in 1998, and later on opened
its lending to other microfinance providers. In 2001, the Small Farmer Development Bank was
established under the Development Bank Act to provide wholesale funds to Small Farmers
Cooperatives Ltd. (SFCLs).

4.2 Practices/Models of MF

Microfinance practices reflect the diversity of landscape and population density in Nepal. In the
Terai region (plain); more densely populated, with better transport infrastructure and easier
access to clients; the Grameen Bank model has been adapted by a large number of organisations.
It is also a region where traditional financial organisations, such as commercial and development
banks, operate. In the hills and mountains, community-based organisations, such as Self Help

31
Groups, Credit and Savings Associations and Cooperatives, seem the most adapted to the
remoteness and isolation of local communities.
`

4.2.1 Grameen Bank methodology

First introduced to Nepal in the early 1990s, it has been adapted by a large number of
organizations, mostly operating in the Terai region (plain), where the population is dense and
road, market and other infrastructures are comparatively more developed than in the hills and
mountains. The methodology is based on peer groups of five members incorporated into centres
of up to ten groups. Weekly meetings are used to collect compulsory payments from members to
contribute to the group’s fund - incorporating both savings and loans. The group fund, managed
by the group, may be used to make additional loans to members. Loans are made initially to two
members, then to two others and finally to the last member, with a four to eight week interval
between each disbursement. The group members guarantee each other’s loan repayments.

Microfinance providers using the Grameen methodology will typically offer general loans,
seasonal loans, specific loans (sanitation, housing) and the loans issued from the group fund.
Savings products are generally the compulsory group fund savings, and any additional personal,
voluntary savings. In recent years, several leading microfinance providers have started to move
away from the traditional Grameen model, to focus on new practices for Nepal, such as a
streamlining of operations, the introduction of customer friendly products, and a strong emphasis
on institution and staff capacity building. New products have also been offered to clients by
several organisations, such as micro insurance covering risks related to health, life and livestock.

4.2.2 Community-based models,

Savings and Credit Cooperative Societies(SCCS), provide a wide range of savings and loan
products to their members. They tend to serve a well-off population but also the poor, with a
stronger emphasis on the disadvantaged in the case of organisations established by development
programs. They commonly require compulsory savings, but also offer individual or group saving
products, deposits, and festival and educational savings services. Loans provided by SCCS have
a minimum term of 3 months and can be extended for more than 18 months, covering specific
purposes, such as agriculture, microenterprise, housing, or, in some cases, emergency or social
reasons. In addition, as successfully demonstrated in India, self-help Groups can be linked to
commercial banks, an approach taken by the Banking with the Poor Program implemented by the
RastriyaBanijya Bank (RBB). Despite the institutional challenges and necessary methodological
adjustments to be made, RBB has lent directly to self-help groups under this program.
Small Farmers Cooperatives were also initiated under the Small Farmers Development Program
of the Agricultural Development Bank of Nepal (ADBN),

32
which was the first Nepali program to use a group-based methodology. The program has faced
major difficulties in terms of portfolio quality (38% NPL) and the dependency of groups towards
ADBN loan capital. GTZ has supported methodological changes to the ADBN, which is also
under restructuring phase, led by the ADB. Under a joint Nepali-German program, RUFIN, GTZ
has provided technical assistance to the ADBN in transforming the groups into sustainable Small
Farmers Development Cooperatives (SFCLs), now largely financed by an apex bank. Despite the
recent successes in revitalizing the program, problems still persist such as recapitalisation and
sustainability issues.
4.2.3 Village Bank model
It was also used in Nepal, with the Women Empowerment Program of Pact Nepal, between 1998
and 2001. Adapted from the model used in Latin America, village banks are community-
managed credit and savings associations designed to provide financial services to members
living in rural areas. This methodology focuses on empowering relatively large groups of people
(20-40 in Nepal) in building their own financial institution, with a savings first approach. First,
the village bank promoters, in this case local NGO partners of Pact Nepal, provided training to
the village banks, focusing on building the capacity of membership and management
committees. The promoters also lend fund capital to build up the ‘external account’ of the village
bank, which is then on lent to members. Repayments from members are collected by the village
bank, which repay its main obligation to the promoters. In parallel, the village bank members
build up their ‘internal account’ through savings and on lend internally this fund. This model was
successful in Nepal, as it combined training in literacy and business development with financial
services and was able to obtain a large outreach at low cost. However, of the few weaknesses,
was the dependency created by the financial links between village banks and promoters.
4.2.4 Other group and individual lending methodologies

The two public-owned commercial banks, Nepal Bank Ltd. and RastriyaBanijya Bank,
representing 95% of the rural branches of commercial banks in Nepal, are reducing their
presence in rural areas. Their branches were considerably weakened by the consequences of the
local conflict and the growing pressure from the restructuring program supported by the World
Bank. Under the deprived sector requirement, commercial banks can choose to provide equity or
wholesale funds to microfinance institutions, or lend directly to the poor. In the later case, they
typically provide loans not exceeding Rs.30, 000 to individuals or groups, most often in the
context of a government-sponsored program (Intensive Banking Program for example).
Government programs such as the Micro-Credit Project for Women (MCPW) provide
opportunities for NGOs to borrow wholesale funds for loans to groups of poor people. With the
introduction of this program, the Financial Intermediary Societies Act 1998 enabled NGOs to
provide microcredit to their group members. With the first amendment of the Act, NGOs were
also able to acquire a limited banking licence from the central bank and act as Financial
Intermediaries NGOs (FINGOs), and therefore acquired the possibility to mobilize savings of
their members.
The development of microfinance practices in Nepal still faces many challenges. There is a need
to undertake further research on developing a model adapted to the hills and mountains. Based
on initial research conducted by CMF, a federative model of Savings and Credit Cooperatives
Societies (SCCS) could significantly increase the outreach of microfinance services in the hills.
As in many countries, deepening the outreach in targeting the poorest is still a difficult task in
Nepal. Moreover, the political context and the current insurgency do not provide the ideal

33
conditions for microfinance methodologies to be the most efficient, given the additional costs
related to the insecurity situation in rural areas.
4.3 Providers of MF
The microfinance market in Nepal can be divided into three sectors: formal, semi-formal and
informal.

4.3.1 Formal Sector

It is composed of: 17 commercial banks, 10 development banks, 57 finance companies and 9

rural microfinance banks. The rural microfinance banks are comprised of a group of nine
Grameen Bank replications. Five ‘GrameenBikas Banks’, or Regional Rural Development Banks
(RRDBs), are publicly owned, with each of them operating in the five development regions of
Nepal (Far Western, mid Western, Western, Central and Eastern). Despite easy access to funding
sources and impressive outreach in the Nepal context, these organisations have not been
successful in terms of sustainability and portfolio quality; in consequences three of them have
accumulated substantial losses. The Grameen Bikas Banks is currently going through a
restructuring process, led by the NRB, which will ultimately result in their privatization.
Operating in the Western Development Region ‘Paschimanchal GrameenBikas Bank Ltd’, the
most successful Grameen Bikas Bank is currently in the last stage of complete privatization. In
comparison, the four private rural microfinance banks are doing better than their public
counterparts. The two largest are: NirdhanUttan Bank Ltd and Swabalamban Bikas Bank Ltd.,
which both originated from the transfer of the microfinance portfolios of their NGO parent
organisation, respectively Nirdhan and the Center for Self Help Development. In addition,
Chhimek Bikas Bank was promoted by the NGO Neighbourhood Society Service Centre
(NSSC), while the DEPROSC Development Bank Ltd was established by the NGO DEPROSC.

4.3.2 Semi-Formal Sector

It comprises savings and credit cooperatives, societies and financial intermediary NGOs. Savings
and Credit Cooperatives Societies (SCCS) have been created through different processes. The
most common being community-based organisations that have evolved from informal self-help
groups to credit and savings organisations status, and then graduated to become formal Savings
and Credit Cooperatives Societies. As of mid-July 2002, there were 2,262 Savings and Credit
Cooperatives Societies registered with the Department of Cooperatives. Generally, SCCS
emerged spontaneously but were sometimes assisted by local or international NGOs. They
usually comprise between; 25 to 200 members, while the largest could reach 9,000 members.
With increased external support to their institutional development, these organisations could
have a very high potential to be linked to formal source of funds.

34
Some of them have been very innovative in targeting the poor while reaching financial
sustainability, and made a positive impact on the lives of their members.
34 SCCS with a stronger focus on microfinance have registered with the NRB (under the FIA),
and are now supervised by the central bank, which has issued them a limited banking license,
allowing the provision of financial services to non-members. Some prominent cooperatives are
the Women’s Cooperative Society and BISCOL, both combining Grameen Bank methodologies
and cooperative principles with their microfinance clients. Some SCCS are also supported and
funded by organisations such as the Rural Microfinance Development Centre, Rural Self
Reliance Fund operated by the central bank, and small enterprise development department of
commercial banks. Some cooperatives, called Small Farmers Cooperative Ltd (SFCLs) are
federations of small farmer groups organised under the Small Farmers Development Program of
the Agricultural Development Bank of Nepal, with technical assistance from GTZ. 149 of them
are formally registered according to the Cooperative Act, 11 of them have obtained limited
banking license from NRB. They can access wholesale fund from Sana KisanBikas Bank, an
apex institution in the field of wholesale lending, and the RMDC and RSRF, other apex funds

44 Financial intermediaries NGOs are currently registered with the NRB, which gives them a
limited banking licence, allowing them to borrow from commercial banks for lending to clients.
The most important NGOs are the organisations at the core of rural microfinance banks (such as
Nirdhan, CSD, etc) and ‘regular’ NGOs such the Nepal Rural Development Society Center
(NRSDC), Nepal Rural Development Organization (NERUDO) and Tharu and Razi Women
Society (TRWS). Some international NGOs are also supporting microfinance services at
different levels. In the past, PACT Nepal implemented the highly successful ‘Women
Empowerment Program’, between 1998 and 2001, through 240 local partner organisation
implementing a credit plus approach, combining literacy, business development
services and a village banking methodology. The program reached 6,500 groups with 130,000
members in the lowland Terai region of Nepal.

4.3.3 Informal Sector

It gathers informal community-based organisations at different stages of institutionalisation, such

as self-help groups and informal savings and credit organisations. Moneylenders, traders, friends
and relatives can also be included in this group as they provide an informal source of finance
used by the majority of the poor population in Nepal. Dhikuti are informal groups that pool funds
to extend informal credit to their members.
Despite the vibrant microfinance landscape in Nepal, there is still a scarcity of MFIs in Nepal. A
very few cooperatives can be considered MFIs, as they lack focus and institutional capacity.
Most NGOs are also at an earlier stage of development, with gaps in terms of systems,
leadership, staff development and organisational structure. The growth of microfinance in Nepal
is therefore constrained by the lack of new microfinance providers, the difficulties of public-
owned RRDBs and the government promoted projects, for which the quality of their portfolio
has severe impact on their sustainability. NGOs operating as financial intermediaries are also

35
limited in their growth, as commercial borrowing requires a personal guarantee from their
directors. Overall, the scaling up of existing MFIs is also dependent on political and security
issues and the high capital requirements.

4.4Regulations in Microfinance

Priority sector lending program: The central bank (NRB) imposes ‘priority sector’ lending to
commercial banks, which entails lending a certain percentage of their deposit liability to
deprived population. The ratio of priority sector lending has increased from 5 percent to 12
percent, of which, 0.25 to 3 percent must be invested in the ‘deprived’ sector, targeting the
poorest of the poor.

Development Banks Act 1995: The two apex organisations as well as the five Regional
Microfinance Rural Development Banks (RRDBs) and the four private rural microfinance banks
are registered under Development Bank Act 1995. This Act was merged under BAFIO-2004.

Financial Intermediary Act 1998: The NGOs providing microfinance services are registered
under the 'Financial Intermediary Act 1998', which provides a limited banking license to NGOs.
To date 47 NGOs are registered under this Act and providing financial services.

Cooperative Act: Cooperatives are regulated by the Cooperative Act and supervised by the
Ministry of Agriculture, Department of Cooperatives. Out of various types of cooperatives
savings and credit cooperatives are providing microfinance services. There are 8000 registered
Cooperatives of which 2700 are savings and credit cooperatives.

4.5 Funding and Supporting Organisations of Microfinance

4.5.1Funding Organizations
Each having a specific purpose and clientele, wholesale lending organisations provides a
substantial amount of lending to microfinance providers. The Rural Self-Reliance Fund (RSRF)
was established in 1990 by the government of Nepal to support organisations providing financial
services at a grassroots level in rural areas. These included: Savings and Credit Cooperatives,
NGOs, and Grameen replications. RSRF is currently managed by Nepal Rastra Bank, with a
portfolio of Rs. 19.2 million outstanding as of mid January 2004.
The Rural Microfinance Development Centre Ltd. (RMDC) provides wholesale funding to
regulated microfinance organisations that comply with a strict set of criteria related to their
institutional capacity, focusing on the poor and financial performance. As of January 2004,
RMDC had Rs.956 million in loans outstanding, approximately 47 percent with private Grameen
Bank replications. RMDC has had difficulties in disbursing all of its available funds due to the
small pool of partners able to satisfy its criteria (on institutional development, sustainability and
poverty focus), and the cap put on the level of lending to each borrower institution (Rs. 40
million). Moreover, its lending rate (6.5 percent) is in direct competition with the commercial
bank’s low interest rate (4 percent) under their deprived sector lending obligations. Moreover,
RMDC has been a key stakeholder in the development of microfinance in Nepal, by providing

36
training services to thousands of officials, MFIs staff and clients, and by influencing policies and
regulations for microfinance.
Another apex organisation, Sana KisanBikas Bank (Small Farmer Development Bank) was
established in 2001 by the Agricultural Development Bank of Nepal (ADBN) to outsource the
wholesale funding to Small Farmers Cooperatives Ltd (SFCL), which was formed after the
transformation of Small Farmers Development Projects, promoted under the Small Farmers
Development Project, into cooperatives. SKKB is owned by: ADB/N, the Ministry of Finance,
two commercial banks, and a group of SFCLs. It is envisaged that SFCLs majority ownership
will grow over time.
In Nepal USAID focuses on education, gender and microfinance programs. It has provided
substantial funding to Pact Nepal for the Women Empowerment Program until 2001. USAID
will continue to promote microfinance and education through recent grants to World Education
to support the WEEL project (Women Economic Empowerment and Literacy) and to Save the
Children under the IGP grant program.
4.5.2 Supporting Organisations
The Centre for Microfinance is one of the key organisations supporting microfinance in Nepal. It
aims at strengthening the microfinance sector through capacity building, research and
consultancy services. It is also involved in policy development, an innovation catalyst (partner in
a micro insurance pilot scheme), and impact assessment. CMF currently partner with Impact, an
international project focusing on the social impact of microfinance, funded by the Ford
Foundation and implemented by three UK universities.
The Institute for Integrated Development Studies (IIDS), established in 1990, is an independent
research institute, under NGO status, focusing on development issues in Nepal. It undertakes
research studies as well as action-research programs. In microfinance, it implements the ‘Self-
Reliant Development of the Poor by the Poor program’, which covers 18 village development
committees in Western Tarai and has reached 3,000 beneficiaries from the poor and underserved
communities. The program supports the formation, development and transformation of self-help
groups, which ultimately become registered cooperatives with access to external capital. IIDS
also provides self-help groups with credit for development activities and the constitution of
revolving loan fund for income generating activities. Approximately 180 groups have been
supported, some of them operating under cooperative rules and accessing funds from RSRF.
IIDS has also provided technical assistance and capital funds to women’s groups.
Over the years, local microfinance networks have been established in Nepal, such as the
Microfinance Association of Nepal (MIFAN), the Grameen Replications Network and several
cooperative networks and federations. However, they are now mostly inactive, due to a lack of
funding and the diversity and geographical isolation of their members. Plan International, an
international NGO, encourages the creation of a national microfinance forum, which would
involve policy makers, academics and microfinance providers. This forum would focus on issues
such as product development, pro-poor methodologies, regulations and standards.
Plan also supports microfinance providers in increasing their outreach, and provides Nirdhan
with financial assistance in establishing linkages with self-help groups and building the capacity
of cooperatives. It also collaborates with the Women Credit Union. Through collaboration with
Nirdhan, Plan provides capacity building assistance in monitoring the impact of financial
products in the lives of clients and their barrier to growth. Plan also manages the education
component of the credit plus approach implemented by Nirdhan.

37
RUFIN is a joint Nepali-German project, implemented by the Agricultural Development Bank of
Nepal, with technical assistance from the German Agency for Technical Cooperation (GTZ).
RUFIN aims at bringing sustainable financial services to the rural poor and has supported the
transformation of SFD Projects promoted under the Small Farmers Development Project into
Small Farmers Cooperatives (SFCL) and in the establishment of Sana Kisan Bikas Bank –
SKBB- (Small Farmer Development Bank) in 2002.

CHAPTER FIVE
DATA ANALYSIS OF RESPONDENTS

This chapter is aimed to display and evaluate the collected data regarding the objectives. The
main component of micro-finance program is to provide loan for women and small farmer
especially in income generation and enhance living standard as well as to encourage them for
compulsory saving and voluntary saving.

38
5.1 Caste, Age and Marital Status of small farmer
5.1.1 Cast and Ethnicity of Respondent
Table 5.1
Caste and Ethnicity of Respondent
Caste Total Member Percentage
Brahmin and Chhetri 22 34.92
Magers 10 15.87
Chaudhary 18 28.57
Other 13 20.62
Total 63 100
Source: Field Survey, 2013
Table 5.1 shows that in the study area majority of members belongs to Brahmin and Chhetri.
34.92 percent of member comes from Brahmin and Chhetri. 15.87 percent are Magers, 28.57
percentages from Chaudhary and rest 20.62 percentage are from other cast. Thus the Pratapur
VDC is multi ethnic world comprising prominently four ethnic groups.

5.1.2 Age Group of the Respondents

Table 5.2
Age Group of the Respondents
Age Group No of Respondents Percentage
20-30 10 15.87
30-40 17 26.98
40-50 20 31.74
50-60 13 20.63
60-70 3 4.78
Total 63 100
Source: Field Survey, 2013
The youngest among the members surveyed was 20 years old while the oldest was 67 years old.
We find very little members who had 60 years over were only 4.78 percent. Table shows that
more than half percentage of the women and small farmer members are between 30 to 50 years
who have heavy financial load for their survival and other social responsibilities such as giving
education, marriage of their children.

39
5.1.3 Marital Status of Respondents
Figure 5.1
Marital Status of Respondent

Figure 5.1
shows, that majority 85.71 percentage of the member surveyed were married. Unmarried are
only 4 women which represent 6.34 percent on all respondents. Only 3.17 percentages are
widowed and 4.78 percentages are separated divorced. This data means that 8 percentages of the
members surveyed are heads of household.

5.2 Family Size, Family Head and Education Attainment of the Respondents.
5.2.1 Family size of the Respondents
Table 5.3
Family Size of the Respondents
No of Family Member No of Family Percentage
1-3 Members 8 12.7
4-6 Members 42 66.67
7-9 Members 11 17.5
10-12 Members 2 3.17
Total 63 100
Sources: Field Survey, 2013
40
Table 5.3 shows the increasing preference towards nuclear family. 12.7 percentages of the
member served belongs to small sized households with 1-3 members. However, 66.67
percentages come from medium sized households with 4-6 members and negligible percentage
(3.17) had large sized family member with 10-12 persons.

5.2.2 Family Head of the Respondents

Table5.4
Family Head of the Respondents
S. N. Category Frequency Percentage
1. Herself 30 47.6
2. Himself 15 23.8
3. Others 18 29.6
Total 63 100
Sources: Field Survey, 2013
Table 5. 4 shows that, the majority of households are mostly male headed, clearly showing the
patriarchic family system, which is often blamed for the lower efficiency of the family as a
production unit and the main cause of repression of women within a family and society as a
whole. Of the total 63 respondents covered in the study 53 percent belonged to male headed
household and others remaining 47 percent are female headed. Lower percentage of female
headed household reflects the dominant position of male member of family over the female
member. Most of the sample
members belonged to the house headed by the male members, means major and important
decision in the family is taken by the male members, no matter how serious it is towards women
of their concerns.

41
]
5.2.3 Education Attainment of the Respondents.
Table 5.5
Education Attainment of the Respondents
Educational level No of Respondents Percentage
No Education/illiterate 10 15.87
Joined Adult Literacy Class 13 20.63
Primary School 19 30.15
High School 16 25.40
Higher Education 5 7.95
Total 63 100
Sources: Field Survey, 2013
Table 5.5 shows the pitiable educational condition of the member in the periphery of
Nawalparasi district. 15.87 percentages of the members surveyed had no formal education. 20.63
percentages of these without formal education had joined adult literacy classes. Only 7.95
percentages reached the Higher Education. It indicates sheer negligence of concerned authority
in education.
5.3 Land Holding Sizes of the Respondents
Table 5.6
Land Holding Sizes of the Respondents
Size of land No. of Respondents
Landless 2
Below 5 kattha 26
5-10 kattha 17
10-20 kattha 11
20 kattha above 7
Sources: Field Survey, 2013
In the field of study it is found that 3.17 percent of the total sample do not have their acess on
land. 41.27 percent have the land below 5 Kattha, 26.98 percent have their land from 5 Kattha to
10 Kattha ,17.46 percent have the land from 10 Kattha to 20 Kattha. And the remaining 11.11
percent of the respondent have more than 20 Kattha land. This indicates that on few percent of
respondent have the enough land.
5.4 Purpose of Join in Micro-finance Programs.
Table 5.7
Purpose of Join in Micro-finance Programs
Purpose of Loan No of Respondent Percentage
To earn more 35 55.55
To have company with friends 8 12.7
To be self dependents 20 31.75
Total 63 100

42
Sources: Field Survey, 2013
Table 5.7 shows, the main purpose of join in Micro-finance programs. Normally they join for
three purpose, many of them (55.55 percent) join for to earn more and increase their life
standard. 12.7 percentage of them were join for company with friends, they wanted to do some
things. Rest 31.75 percentages were joining for self dependent. They wanted to run own micro-
enterprise. This program helps for fulfillment of their purpose although they were different.

5.5 Main Occupational Status of the Respondents

5.5.1 Main occupations of the Respondents before this Program
Figure 5.2
Main Occupations of the Respondents before this Program

Sources: Field Survey, 2013

Figure 5.2 shows that 30 percent of the members surveyed claimed that their main occupation
was that of wage laborer, 24 percent identified himself or herself as wine seller. The field survey
shows that the occupations are very much influenced by caste/ethnic group. Mostly Magar
women have adopted home made wine selling. Newar women-spinning and Brahmin/Chhetri
Farming as their occupation. 15.87 percentage identified them as Micro entrepreneur engaged in
mill and making cloth.Only 7.94 of the respondent are found engaged in different type of
government sector.

5.5.2 Main Occupation of the Respondents after this Program.

Table 5.8
Main Occupation of the Respondents after this Program
Occupation Total Percent
Wage Laborer 15 23.81
Sellinghome made Wine 8 12.7

43
 Farming 20 31.75
Weaving Machine 15 23.81
Government Service 5 7.94
Total 63 100
Sources: Field Survey, 2013

Table 5.8 shows the sight changes in the occupation after the introduction of MFP in the
surveyed area. The percentage of respondents after joining the Microfinance in agriculture sector
has increased. While the occupation of most of the respondents remains same but the way of the
income generation has increased. This indicates that the establishment of microfinance has
played the vital role in increasing the income level of respondents. Due to lack of skill and
vocational training most of the respondents are forced to engage on laborious works.

5.6 Loan Status of the Respondents.

5.6.1 Main Purpose of the Taking Loan
Table 5.9
Main Purpose of the Taking Loan
S. No Main Purpose of No of Percentage
Loan Respondents
1. House hold needs 5 7.94
2. Celebration of 2 3.17
festival
3. Real-estate 3 4.76
4. Luxurious goods 1 1.59
5. Health and 8 12.7
services
6 Farming 25 39.68
7. Business 14 22.22
8. Others 5 7.94
Total 63 100

Table 5.9 shows the mentioned purpose of taking loan from the Micro-finance. Maximum no of
respondent (39.68) percentages were taking loan for the purpose of Farming. Very little
respondents were taking loan to celebrate festivals and luxurious goods, which is not the
productive work. Very small amount of loan was provided for this purpose. 7.94 percentages
were taking for the fulfillment of their house hold needs. 4.76 percentages respondents were

44
taking loan for the Real-estate. In this way different person takes loan for the fulfillment of their
own needs and wants. MIFs institutions help to fulfill in their income generating works.

5.6.2 Status of Loan uses in Specific Objectives.

Figure5.3
Status of Loan uses in Specific Objectives

Sources: Field Survey; 2013

Figure 5.3 shows, 82.54 percent of loan are used in specific purpose which increased business in
this area whereas 17.46 percent of loan is not spent in specific purpose for which the loan has
been taken, it indicates that the number are not skilled, trained and capable enough to utilize their
resources due to which it is misused.

5.6.3 Loan Amount and Frequency of Loan Taken

Table 5.10
Loan Amount and Frequency of Loan Taken
Loan amount borrowed (in Rs) Frequency of borrowing the Percentage
loan
20000 10 15.87
50000 10 15.87
80000 8 12.7
90000 7 11.11
100000 12 19.05
120000 4 6.35
150000 6 9.52
180000 3 4.76
200000 3 4.76
Total 100
Source: Field Survey; 2013
Table 5.10 shows the loan amount and frequency of loan taken by the respondent.19.05 percent
of the respondent said that they have taken the loan from micro finance amount rupees 100000

45
which is the highest and 4.76 percent of the respondent said that they have taken the loan amount
rupees 180000 and 200000 which is the lowest.

5.7 Earning Status of the Respondents.

5.7.1 Monthly Earning before and After Joining the MFP
Table 5.11
Monthly Earning before and After Joining the MFP
S.N. Income in Rs. No of Respondents Change
(After-
Before)
Before MFP. After MFP
1. Less 1500 8 3 -5
2. 1500-3000 14 3 -11
3. 3000-8000 17 5 -12
4. 8000-12000 8 8 0
5. 12000-14000 7 11 4
6 14000-18000 6 14 8
7 18000 Above 3 19 16
Total 63 63
Source: Field Survey; 2013
Table 5.11 shows the income status of the respondents before and after MFP. Before micro-
finance programs there were 8 person out of 63 had income less than Rs. 1500 but, after
programs this number is only 3. In this way, number of respondent who earn between Rs 3000-
8000 were 17 but this is reduce by 12 numbers. This clearly shows that the families are poor in
terms of income. Agriculture production is not sufficient to feed their family year-round,
whereas well-off household had surplus agriculture production. Before micro-finance programs
only 3 respondents earn above Rs 18000 but now this number is reached to 19. Monthly income
increase due to joining the program. MIFs savings and credit services provided an opportunity
for their members to undertake different enterprises, including micro enterprises. This helped the
members to generate self-employment and increase their incomes, thereby contributing towards
reducing their poverty to same extent.

5.8 Socio-Economic status of Respondents.

5.8.1 Socio Economic Status before joining NUBL by Farmer
Figure 5.4
Socio Economic Status before joining NUBL by Farmer

Source: Field survey, 2013

46
Figure 5.4 shows that 40 percent respondents said that before the membership of NUBLlevel of
income is low due to low source of income, 20 percent of respondent said that they have poor
acess on education and health service, 10 percent of the respondent replied that their
participation on social work was low , 10 percent of the respondent said that their living standard
was poor and remaining 20 percent of respondent said that they have no acess on ownership.

5.8.2 Socio Economic Status after joining NUBL by Farmer

Figure 5.5
Socio Economic Status after joining NUBL by Farmer

Source: Field survey, 2013

Figure5. 5 shows that 20 percent respondents said that membership of NUBLis effective in
changing their level of income, 10 percent of respondent said that it is effective in increasing
acess on education and health service, 13 percent of the respondent replied that it is effective in
enhancing the participation on social work , 30 percent of the respondent said that membership
on NUBL is effective to raise their living standard and remaining 23 percent of respondent said
that it is effective to increase the acess on ownership.
By comparing the Socio-economic status before and after joining the NUBL by Small farmer, it
is found that this microfinance play a Heoric role in order to improve the socio-economic status
of its members. The amount of loan provided by the microfinance in different headings such as
Agriculture, Livestock, Business, Educational settlement, Foreign employment ,Social work and
Real state has increased the level of income, consumption pattern, ownership, knowledge and
participation on social work.

5.8.3 Educational Status before joining NUBL by WOMEN

Figure 5.6
Educational Status before joining NUBL by WOMEN

Source: Field survey,2013

Figure 5.6 shows that 30 percent respondents said that before the membership of NUBL they
were illetrate, 40 percent of respondent said that they have primary level education,10 percent of
the respondent said that they have lower secondary level,3 percent said secondary level, 6
percent said higher secondary , 4 percent said 10+2 and 2 percent said bachelor level of
Education.This indicates that the level of educational attainment of women before joining NUBL
is at poor level.

47
5.8.4 Educational Status after joining NUBL by WOMEN
Figure 5.7
Educational Status after joining NUBL by WOMEN

Source: Field survey, 2013

Figure 5.7 shows that the illetrate percentage is decrased from 30 percent to 11 percent after
participation in NUBL.10 percent of respondent said that they have lower secondary level
education, ,5 percent of the respondent said that they have secondary level,10percent said higher
secondary level, , 16 percent said 10+2 and 11 percent said bachelor level of Education.This
indicates that the level of educational attainment of women after joining NUBL is increase.
By comparing the education status before and after joining the NUBL by Women, it is found that
the micro finance play a Heroic role in order to improve the education status of its women
members. NUBL is found to be effective in providing their services to their members and it
proved that micro finance is a good instrument to adress the educational problem .
Therefore the respondent said that establishment of NUBL is very effective to changing their
educational status.

5.9 Effectiveness on Poverty Reduction

Responses regarding the effectiveness of NUBL on Poverty reduction the figure below present
the views.
Figure 5.8
Effectiveness on Poverty Reduction

Source: Field survey, 2013

The figure 5.8 shows that NUBL has played a role of corner stone to change the socioeconomic
status of pratapur vdc and helps to reduce the Poverty in some extent. The answer of the
respondents indicates that without the membership in NUBL the people cannot make saving of
their income. Similarly most of respondent replied that they are not enjoying the health services
due to their limited income. Most of the respondent spent their 50 percent of income in the
consumption of daily necessary goods. Likewise they are unable to have quality education as

48
they have limited income. But after enjoying the service of NUBL they have make a change in
their living standard. The saving has reached to 10 percent of their income, they have to spent
less percent of their income on consumption i.e. 50 percent has decreased to 20 percent due to
rise in their income. Similarly they are getting quality education as they are able to spend their 8
percent income in education. Likewise they are able to spend some part of their income in health
service.
Thus the figure shows that the establishment of NUBL in this community helps to reduce the
poverty in some extent.

5.10 Regression Analysis:

Regression Analysis was done to find out the effect of predictors on the dependent variable.
Linear regression were calculated and presented with F and t-value.
Simple Linear Regression Model
Y= a+ b X
Where Y = dependent variable
X = independent variable
a,b = regression parameters

Model Summary

Std. Error of
Model R R Square Adjusted R Square
the Estimate

1 .985 .97 .076 .91542

ANOVA
Sum of
Model df Mean Square F P
Squares

Regression 3.878 1
3.878
Residual 36.034 43 4.627 .037
.838
Total 39.911 44

a. Independent Variable: Membership

b. Dependent Variable : Access on ownership

Regression between Membership and Access on Ownership

Coefficients

49
 Standardized
Model Unstandardized Coefficients Coefficients T P
Beta
B Std. Error

(Constant) 1.872 .522 3.588 .001

membership .428 .199 .312 2.151 .037

The result shows that during linear regression analysis, significant relationship was observed
between membership and access on ownership. The member of the Microfinance increase
investment on various sector such as business, livestock, agriculture, real estate etc after the
involvement in cooperative which leads the increase in their ownership.
During the regression analysis, the relationship between membership and access on ownership is
statistically significant but the value of R square is low which is due to the qualitative nature of
data.

Regression between Membership and Living Standard

Model Summary
Std. Error
Adjusted R
Model R R Square of the
Square
Estimate
1 .800 .64 .111 .432232

ANOVA
Sum of Mean
Model Df F P
Squares square
Regression 1.211 1 1.211 6.481 .015
Residual 8.034 43 .187
Total 9.244 44
a. Independent Variable: Membership
b. Dependent Variable: Living Standard
Coefficients
Standardized
Model Unstandardized Coefficients Coefficients T P
Beta
B Std. Error

(Constant) .683 .246 2.774 .008

membership .239 .094 .362 2.546 .015

The result showed that during linear regression analysis, significant relationship was observed
between membership and Living Standard. The member of the micro finance increase
investment on various sectors such as business, livestock, agriculture, real estate etc after the

50
involvement in microfinance leads the increase in their income. The increase in income increased
living standard too.
During the regression analysis, the relationship between membership and Living Standard is
statistically significant but the value of R square is low which is due to the qualitative nature of
data.
Regression between Membership and Participation on Social Work
Model Summary
Std. Error
Adjusted R
Model R R Square of the
Square
Estimate
1 .560 .313 .106 .62091

ANOVA
Sum of Mean
Model Df F P
Squares square
Regression 2.400 1 2.400 6.226 .017
Residual 16.578 43 .386
Total 18.978 44
a. Independent Variable: Membership
b. Dependent Variable: Poverty reduction

Coefficients
Standardized
Model Unstandardized Coefficients Coefficients t P
Beta
B Std. Error
(Constant) .725 .354 2.049 .047
Membership .336 .135 .356 2.495 .017

The result showed that during linear regression analysis, significant relationship was observed
between membership and Poverty reduction. The member of the microfinance get participated in
different creative and awareness programmers. This activities increases their participation in
social work.
During the regression analysis, the relationship between membership and Poverty reduction is
statistically significant but the value of R square is low which is due to the qualitative Nature of
data.

51
 CHAPTER SIX
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

6.1 SUMMARY:
Microfinance program has been designed to uplift the poorest of the poor from the society those
who are deprived, socially backward, economically weak and from the indigenous groups. From
the field survey it shows majority of clients are illiterate they are not qualified and skilled. Most
of them depend on agriculture or small grocery infront of the house. Really they are under
employed. They do not have sufficient work to do. Most of the clients answer to involved in the
programs to enhance their economical status and better education for their children. The field
survey shows with the intervention of MFPs client are much more conscious, their working hour
increase which supported to increases the income level. Clients left of few have pay their
installment in time and the repayment rate is seems to be cent percent. The programs really
empower the clients and also played a crucial role on decision making process. MFPs also
support to smooth the consumption. The cent percent client involving in the MFPs have demand
a creative and skilled training which supports them to generated income: Cutting, sewing, Pickle
making, chalk making, about handicraft, dolls and decorating material, painting , beauty parlor
are the listed trainings that the clients demand to strengthen their economic status. The finding
and out comes of MFPs are listed below:
 MFP has provided the banking services to those who are under served from the
traditional banking services.
 It has supported to respect the needs of the poor small clients of small loan.
 Due to the MFPs women and indigenous groups of deprived sector are greatly
benefited.

52
  MFP developed as a magical tool to poverty reduction.
 MFP has supported to increases the income level of the poor. On the other hand it
helped to utilize the skills and optimum mobilization of resources that present in local
level.
 MFP initiative to empower the women and take engage in the community development
activities.
 The consumption and clothing pattern has also changed with the involvement in MFPs
 MFP has done a great task of creating the employment by providing loan in rural areas.
 Because of its intervention the working hour of the people has been extended. It has
supported people to commercialize their occupation and get the economic benefit from
their.
 It is also helpful to develop entrepreneur skills in the local level. It support to developed
the micro enterprises.

6.2 Conclusion
Micro-finance program serves the deprived population of the country at their doorstep with the
aim of improving their socio-economic condition. As micro-finance has been considered as an
effective and efficient mechanism to reduce poverty all over the world, however Nepalese micro-
finance institutions are not being able to reach the poorest due to inability of proper identification
of the poor and lack of commitment and clear vision of their action. Despite the financial sector,
liberalization policy of the government aimed to encourage financial institutions to contribute in
poverty reduction endeavor of the government, the satisfactory result have not been achieved due

53
to some managerial challenges encountered by the micro-finance institutions all over the
country.
The challenges faced by the institutions vary depending upon the type of financial institutions as
banks, finance companies, NGOs, co-operative societies and self-help group that are
participating in this program with different functional strategies. These challenges are concerned
with strategic, operational, financial and manpower management. The strategic challenges are
related with planning, controlling mechanism and external policy environment. Unclear vision
and mission statement, lack of commitment, multiple regulatory framework and policy
inconsistencies constrain the sustainable growth of micro-finance institutions in the country.
Inadequacy of resources and lack of linkage mechanism between informal and formal financial
sector, duplication of activities, widening intense competition in urban and semi-urban areas,
inadequate attention towards the loan delinquency management and control to poor human
resources development efforts are perceived as the operational challenges.
The micro-finance institutions need to adopt strategic approaches in order to address these
managerial challenges as a supportive policy with one door controlling and monitoring
mechanism, effort to link formal and informal financial sectors involved in micro-finance
programs and flexibility in financial management regulation. Additionally, financial institutional
themselves need to develop business planning practice and efficient management of human
resources with in the institutions.
Involvement in the micro-finance programs has empowered women in varying degree. It has
offered opportunities for poor women to come out of their household confines, to organize
themselves in group and to work in productive and social activities. The program with its focus
on group activities and income generation has helped to enhance the self-confidence and
increased right to spend, thus increasing the access to resource.
Training for improving farming techniques and micro-enterprises has helped members to shift
from the traditional agriculture to cash crop production, which yields higher returns.
Awareness of healthcare, including women and children’s health, family planning, sanitation and
reduction in smoking, alcohol consumption, etc., have increased. At monthly group meeting,
women discuss health issues which they follow in their day-to-day lives.
The availability of loan from micro finance has helped in reducing the interest rate charged by
moneylenders from 60 percent to 36 percent. Competition in the financial market has helped to
improve the quality of services and it reduces the interest rate but it is still too high.
Members have become more aware of gender equality (participant of the Focus Group
Discussion said that man and women are equal in social aspects, it is wrong to wait for the birth
of a son and increase family size), human rights and women rights issues. They know that
violence; both physical and mantel against women should not be tolerated. They have also
become aware of their voting rights and right to parental property.
Women’s mobility has increased due to their participation in monthly meetings, trainings,
meetings with outsiders, unlike in the past when they had not joined the micro finance.
Saving groups is an important part of the program. Besides the income generating projects group
members are taking credit from within the group at the time of emergency. So group saving has
became their good source of money otherwise they would have to go to the moneylender and it is
accumulating the source of future use. They all left that it has culminated a good habit of saving
weather the source of saving is from project income or any other sources.

54
In respect to financial intermediation, it can be concluded that, although the subject is new in
Nepal, it is the right war to fulfill the financial needs of rural poor. Reaching to the poor through
financial intermediaries is found to be cost effective and targeting can be done correctly.
MFP should widen their area by appointing staffs to hear and understand their problem and to
find out alternative as well as solution. So that, they should not be victimized by excess burden
of debt.
Getting loan in small amount of Rs.3000 to Rs.5000 cannot give optimistic results. The
borrowers use loan for their daily requirement and keep for repayment. Economic upliftment
through such findings is impossible. In order to have optimum utilization of loan, group
investment should be done like small cottage industries, factories, enterprise on the group
consent. So that amount of loan taken will not be seed for consumption purposes rather it is
inversed for productive purpose.
Effective follow-up, supervision and monitoring are essential to utilize loan in actual purpose.
Otherwise many of the borrowers have to pay back loan by selling their property.
6.3 Recommendations
Based on the study following suggestion are recommended for further improvement and
successful implementation of the program

 If the income level of the respondent is seen in the study area, we find some women who
have a clearly higher level of annual income of their family and there remains some
possibility of leaving the poorest of poor untouched by the program. So there should be
proper identification and selection of the target group by the MFIs to insure that the
really poor, backward communities are not left behind.
 To supervise the use of loan and to provide effective skill to advice on the proper
management of the loan, field staffs should be trained regularly. The clients of the
programs received technical as well as managerial guidance to manage micro-finance
program.
 Literacy program is an integral part of rural micro-finance program. Curriculum is
amended toward economic orientation rather than conventional one.
 Volumetric and physical expansions of transaction are being encouraged rather than
productive lending. Potential market based activities be encouraged rather than
replication of the same activities.
 Women are more likely to take part in multiple activities simultaneously to support their
families and to improve understanding of women’s skills while formulating program.
 Participation of women in the program is ever increasing, which makes them overloaded.
Time and drudgery reducing program be integrated. Gender sensitization training is
imparted from the initiation.
 There is a gender division of labor at the household level and women lack access to
control of resources. Learn about the relationship of the household level information
like- Who does what? Who control what? Identify and implement strategies for change
within the family and community.

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 The program should develop practical and varied training courses to the women and small
farmer related development activities as the need particular community.

 The agriculture sector is dominant in absorbing the program. Mostly the loan is used for
investment like beekeeping, poultry farming, goat farming, and pig farming, Buffalo
farming and agriculture with vegetable farming. So livestock sickness and livestock death
makes emergency burden to the borrowers. To solve the problem, following points are
purposed

a. Healthy livestock should be supplied to the borrowers.

b. Necessary vaccine should be arranged at appropriate time.

c. Who can fully devote time to provide services?

d. Through there is the provision of insurance (in the case of death of livestock) but it
has not smoothly implemented. So there is needed of smooth implementation of
insurance provision as well as the provision of insurance to livestock suffering from
disease too.

 There is the marketing problem, it was indeed observed that there were marketing
constraints to solve the farm produce, mostly in vegetable farming. Women produce
vegetables with expensive cost but in the time of sell of produce there is the problem of
market, which must be solved.

 When lending, it is noted that family of the members are the consumers. So in our
community there may be necessary two shows, one tailor, two or three milk suppliers to
surely necessary goods for community.

 The position of the program staff should be permanent, so that could perform their
responsibility with confidence and concentration. Given the field orientation nature of
work of the program allowance should be raised.

 There is need to shift the program from agriculture based to small industry and other
business promoted activities. Since there is higher operational cost in agriculture base
activities.

 The effective crosscutting programs are necessary for microfinance program.

 Microfinance program is formed operating their transactions without due consideration

for their financial viability and sustainability. For the viability and sustainability,

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 effective government policy is also necessary. So interest must be charged at the rate and
cost must be minimized where the institution is viable.

 Microfinance program is not a family business, so member of board and executive

committee of the institution must be awarded of their role and responsibility.

APPENDIX I
THE EFFECTIVENESS OF MICRO FINANCE IN NEPALESE ECONOMY
(A CASE STUDY OF NUBL, PROGRAM IN PRATAPUR VDC, NAWALPARASI)
Questionnaire
Questionnaire no:-……………………….. Date:-2070/…./…
Respondent's Name:-………………………
Address:-…………………………………..

1. Personal Profile
1.1 Age
1.2 Your marital status (Tick)
a) Married b) Unmarried
c) Divorced d) Widow
2. Family information
2.1 Your current family member (Tick)
Children: - 0-14 years Female Male

Adult: - 15-64years Female Male

Older: - 65and above Female Male

2.2 Members who earn from (Tick)

a) Government services b) Business

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 b) Private firm/industries d) on own farm

e) Other (specify):-………………

2.3 Who is the head of your family? (Tick)

a) Self b) Others

3. Economic Background
3.1 Do you have land of your own? (Tick)

a) Yes b) No

3.2 What was your main occupation?

Sector Before Income After Income
Agriculture
Business
Private sector
Government

4. Participation in micro-finance
4.1 How did you know about the MF Program?
………………………………………………………………………………………
4.2 How did you enter in the group?

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…………………………………………………………………………………………
4.3 What is your position in the group? :-…………………………………………………..
4.4 How did you feel to enter in the group? (Tick)
a) Very difficult b) Difficult c) Normal

d) Easy e) Very easy d) others

5. Loan received, use and repay

5.1 From where do you receive loan?
Sources Before After
Amount Rate of interest Amount Rate of interest
Local money lender
Co-operative
Bank
Microfinance

5.2Who decided utilization of the loan? (Tick)

a) Self b) Family head c) Common decision

5.3 Why did you join this program? (Tick)

a) To earn more income and to improve family condition.
b) To have company with friends.
c) To be self-dependent.

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5.4What is the purpose of taking the loan and how much is it?

S.N Items Before(amount) After(amount)

1 Consumption expenditure
2 Celebration of festival
3 Real-estate
4 Luxurious goods
5 Health and services
6 Farming
7 Business
8 Other

5.6 How do you pay back the loan? (Tick)

a) Partially b) At once c) Not paid yet

5.7 Have you ever faced difficulties to pay back the loan and interest?

a) Yes b) No

If yes, what are the difficulties? How did you solve it?

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………………………………………………………………………………………………
5.8 Have you conduct any literacy class?
Program Before After
Adult literacy class
Woman literacy class
Pre-primary class

6. Family Statuses:
6.1 What changes has been occurred after joining this program?

S.N Subject Before After

1 Access on electric device
2 Expenses on luxurious goods
3 Meat eating habit
4 Expenses on entertainment

6.2 How do your family members and relatives deal with you after joining the group? (Tick)

a) Appreciate b) Criticize c) Others………….

6.3 In your opinion, what are the main benefits of joining MF group?
……………………………………………………………………………………………
7. Question for the management
7.1 Do you investment on the following heading?(Tick)
a) Agriculture b) Pastorals
c) Business d) Education
e) Social program
7.1 How much investment has been done by NUBL?
Heading Minimum(Amount) Maximum(Amount)
Agriculture

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Pastorals
Business
Education
Social
program
Others

7.2 How do make your investment? (Tick)

a) Without collateral b) With collateral
c) With risk bearer
7.3 How do you return back the loan? (Tick)
a) With low interest rate. (.........%)
b) Without interest rate.
c) Installment payment.
d) Full payment.

8. Trainings
8.1 Have you taken any training from micro finance program? (Tick)

a) Yes b) No

8.2 How helpful has the training you received form MFI been in your enterprise operation?
(Tick)
a) Very helpful b) Helpful c) Not helpful
d) Others……………………………………………………………………
8.3 Has the training increased your skill? (Tick)

A) Very much increased b) Normally increased c) Not increased

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8.4 After receiving the training, has your confidence on income generating activities increased?
(Tick)

a) Yes b) No

8.5 Do you think your employment opportunity in labor market has increased due to training you
received from MFI? (Tick)
a) Increased b) Decreased

c) Constant d) don’t know

9. Effectiveness on poverty reduction

What changes has occurred on the following headings
Headings Before( amount) After (amount) % change
Saving
Consumption pattern
Education
Health and services

10. Are you happy involving in this Micro finance? (Tick)

a) Yes b) No

c) Others (Please specify)…………………………………….

11) What types of benefits you have from this MF?

Program Having it Have not

Economical independent

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Social awareness
Literacy program
Basic skill development
Decision power development program
Gender equality

12) What social and economic changed has been appears from MF?

Status of Before joining MF After joining Mf

respondent
Investment output Investment output
Agriculture
Business
Employment
Pastoral
Education
Celebration of
festival
Participation on
social work
Donation

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 LISTOF REFERENCES
Lindgren, Elaine, (2002). Micro Finance and Women Empowerment in Rural Bangladesh, North
Dakota State University, Bangladesh
Stock Cope(1995). The Methods and Materials of Population Analysis, New York Academic
Press, New York

Khandker(1998).Fighting Poverty with Micro-Credit, Experience in Bangladesh, Oxford

University Press, U.K.

RMDC,(2008) Impact of Microfinance Services on the Clients of RMDC's Partner

Organizations, RMDC, Nepal
SFPS and RD,(2004) “Impact Evaluation of Microfinance Programs on poverty Reduction.
Submitted to Central Monitoring and Evaluation Division National Planning Secretariat Singha
Durbar, Kathmandu.

Ledgerwood,(2006). Transforming microfinance Institutions: providing full financial services to

the poor, the World Bank

Acharya.P.P.(2005).Micro Finance Network of Nepal, Progress and Experience, Center for

Micro Finance, Kathmandu

Poudyal, (2005).Micro Finance and its Impact on Economy Upliftment of Women. A Dissertation
Submitted to the Central Department of Economics,kirtipur, kathmandu

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Kayastha,(2010).Governance in Microfinance institution in Nepal .Microfinance Summit
Nepal2010.Kathmandu

Sigdel , B.(2007). Poverty and inequality: microfinance Gradual poverty Reduction in Nepal,
Socio-Economy Development Panorama. Kathmandu

Sharma P.(2006). Micro-Finance and its Service Development Challenges and Opportunity in
Nepal.Central Department of Management TU, Kirtipur, Kathmandu

Dhakal, (2010). Microfinance and Climate Change: Emerging good practices among leading
Nepalese microfinance institutions. A Dissertation Submitted to School of Humanities.The
Global Open University, Nagaland

Khatiwada,(2009).Impact of Microfinance on Income Generation of Rural people. A Dissertation

Submitted to the Central Department of Economics .Kirtipur, Kathmandu

Ghimire, (2005). Impact of Microfinance, A Case Study Of Microcredit Program For Women In
Nepal. Kathmandu: Unpublished Dissertation

Websites

http//www. Microfinance info.com/history of microfinance.

http//www. Microfinance gat way.com

http//www. Cmfnepal .com

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